CH18: Cost behavior & CVP Flashcards
what is CVP
cost volume profit analysis
fixed costs
costs that dont change even when volume changes
(fixed cost per unit however increase/decrease depending on volume)
variable costs
costs that change in proportion to changes in volume
(VC per unit stays the same however even when volume increases)
(this just changes total VC)
Mixed costs
costs that include both variable and fixed costs
step wise costs
costs with a step pattern but remain the same in a relevant range
which cost has costs even when there are 0 units produced
fixed costs
examples of fixed costs
-depreciation
-rent
-taxes
-supervisor salaries
-insurance
examples of Variable costs
-direct mats
-hourly wages
-packaging
-direct labor
examples of mixed costs
-salesmen salary + commission
-factory utilities
how do you find total costs (cost equation)
fixed costs + variable costs
what are the 3 methods to find FC/VC
-scattergram
-high low method
-regression
scatter diagram
scatterplot graph of unit volume and cost data
what does the high low method do
uses highest and lowest volume levals to estimate a cost equation
high low method formula
cost at high vol-cost at low vol
/
high vol-low vol
=variable cost per unit
formula for finding fixed costs using high low
total costs (high point)= fixed costs + (variable cost x #of units (high point)
contribution margin
sales - variable costs
contribution margin per unit
selling price per unit - variable cost per unit
amt by which selling price exceeds variable costs
contribution margin ratio
contribution margin per unit / selling price per unit
% of a unit’s selling price that exceeds total unit variable cost
how to find fixed costs using just income
contributon margin- income= fixed costs
how to create a contributon margin income statement
Sales (units x sellingprice)
-variable costs (units x variable cost)
=contribution margin
-fixed costs
=income
what is break even
sales at the leval which total sales=total costs
results in 0 income
what are the 3 methods to find break even
-formula method
-contribution margin income statement
-CVP chart (not important)
Formula for break even in units
fixed costs/ contribution margin per unit
formula for break even in dollars
fixed costs/ contribution margin ratio
what happens to BE
1- sales per unit increase
2-sales per unit decreases
1- BE decreases
2-BE increases
what happens to BE
-variable cost per unit increase
-variable cost per unit decrease
-BE increases
-BE decreases
what happens to BE
-fixed costs increase
-fixed costs decrease
-BE increases
-BE decreases
margin of safety definition
amount of sales that can drop before business incurrs a loss
margin of saftey in dollars
expected sales- break even sales
margin of saftey in %
expected sales- BE sales
/
expected sales
how to find break even sales
break even units x selling price per unit
how to find units to be sold to get target income
fixed costs + target income
/
contribution margin per unit
how to find dollars to be sold to get target income
fixed costs + target income
/
contribution margin ratio
